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ECB Eyes Iran War Impact on Inflation Forecasts
12 Mar
Summary
- ECB's new forecasts will reflect the economic impact of the Iran war.
- Inflation projected at 2% target medium-term, pending new March data.
- Policymakers urge patience but acknowledge potential rate hike risks.
The European Central Bank's new quarterly forecasts, due in March, will partially account for the economic consequences of the war in Iran. Executive Board member Isabel Schnabel stated that while current projections see inflation at the 2% target over the medium term, recent developments will be reflected in the updated outlook.
Schnabel emphasized that the ECB's current policy stance remains appropriate. However, she noted that the geopolitical environment introduces upside risks to inflation, particularly concerning persistent energy price volatility. The ECB is scheduled to set interest rates on March 19.
While most officials advocate for patience, acknowledging temporary deviations from the inflation target have limited policy relevance if consumer expectations remain anchored, some, like Slovak central-bank chief Peter Kazimir, suggest the conflict could necessitate earlier rate hikes. Schnabel referenced past success in anchoring expectations and returning inflation to the target, expressing confidence in the ECB's ability to manage new shocks.
